Chapter 1 An Introduction Economic Geography Economic geography

Chapter 1: An Introduction

Economic Geography • Economic geography is a subdiscipline concerned with the spatial organization and distribution of economic activity (production, transportation, communication, and consumption); the use of the world’s resources; and the geographic origins, structure, and dynamics of the world economy. • Economic geographers address a wide range of topics at different spatial scales using different theories and methodologies. • Some focus on local issues such as the impacts of waste incineration facilities, while others study global patterns of hunger and poverty.

Economic Geography Approaches Conceptual approaches found in economic geography include: • models of supply and demand, political economic analyses focused on class and power, feminist theorizations centered on gender, and views that deliberately blur the boundaries between the “economic” and other spheres of society such as culture, consumption, and politics. Methodologically, economic geographers use a range of tools that includes: • geographic information systems, mathematical models, and qualitative assessments based on interviews and field work.

Economic Geography of the World Economy • The focus of this course is the world economy, the networks, processes, and institutions that shape the planetary system of resource distribution, create wealth and poverty in different parts of the globe, and contribute to the rise and fall of different national powers. • The global scale is only one way in which economic geography can be studied, but given the massive processes of globalization that have been at work, particularly over the last 30 years, it is highly appropriate for understanding what goes on around the world around you. • The world economy links far-flung people and places so that what happens in one place shapes what happens in another through networks of interdependence. • Every trip to the grocery store is a window on the global economy and an act of participation in it.

Changes in the world economy • The world economy is constantly being transformed by a combination of technological and geopolitical forces, which in turn generate a globalization of culture, of the economy, and of environmental issues. • Around the world, countries have witnessed the steady growth of large private corporations, the rising role of markets and a diminished role for the state, and lower barriers to trade. • Technological changes—improvements in transportation and communications—are reducing the friction of distance and barriers to worldwide exchange. • The principal instruments of the globalization of culture are worldwide television, music, and consumption patterns. • The principal instruments of globalization of the economy are TNCs, which are producing new efficiencies and new geographies in production, distribution, and the use of the world’s resources.

Changes in the world economy • The collapse of communism around the world in the 1990 s, the implementation of trade alliances such as NAFTA and the European Union, the explosion of banking and finance via telecommunications systems, the rising power of corporations domestically and internationally, and the worldwide reduction of government roles via privatization and deregulation all marked a new round of globalization by removing many institutional barriers to investment and trade. • This increased pace of globalization has enormous implications for countries, states, and regions. Changes in the world economy are simultaneously cultural, technological, political, and environmental.

Changes in the world economy • Reductions in transportation costs, for example, have improved exchanges of people and goods. • Advancements in telecommunications, including fiber-optic networks and the Internet, have rapidly increased the ease, speed, quantity, and quality of information transactions.

Changes in the world economy • Rising populations in the developing world, and stagnant demographic growth in the developed world, have altered the global supply, demand, and cost of labor, shaping migration patterns. • Globalization has accelerated international economic, political, and cultural ties, ranging from corporate investment to trade, to tourism, to terrorism, to the spread of disease. • And cultural changes, including the commodification and Westernization of the world’s many cultures, simultaneous secularization and growing religious fundamentalism in different places, and mounting awareness of international issues, have played a role in reshaping local and global social movements, consumption, and civil society.

Changes in the world economy • Because transportation and communication costs have fallen rapidly, many local services and goods are becoming available internationally. Worldwide communication systems now allow for companies to subcontract their production and financial operations across continents, wherever prices are the cheapest and quality is the best. • The global economy today is spectacularly information-intensive and relies heavily on digital technologies, corporate consultancies, cable television, Internet information services, and software systems design, programming, and application. • International finance has also become both global and computerized, and capital markets are now highly mobile for all forms of marketable equities and securities, stocks, bonds, and currency transactions. • The globalization of finance has been accelerated by financial deregulation —the removal of state controls over interest rates, tariffs, barriers to banking, and other financial services.

International Economic System • The world is full of problems—debt, unemployment, poverty, inadequate access to health care, food shortages, and environmental degradation— that have serious consequences for the lives of every person on the planet, including you. • Such problems are rooted in the structure and development of the world economic system. • Understanding the reasons for such problems begins by recognizing the long domination of the world system by developed countries and the existence of an international economic order established as a framework for an international economic system. • The international economic system, or world economy, includes the institutions and relations of global capitalism, such as global flows of capital (investment), goods (international trade), information, technology, and labor. • Because international markets and flows of resources, capital, labor, and products are always shaped by politically sovereign states, the international economic system is also a political system.

• The capitalist world economy is a multistate economic system that began in Western Europe in the early sixteenth century and grew over the next 400 years. As this system expanded, it developed into a configuration of a core of wealthy countries dominating a periphery of other countries. • One common division of countries is into First, Second, and Third Worlds, a categorization that was a product of the politics of the Cold War. • The First World includes the economically developed countries of Europe, the United States, and Canada, Australia, New Zealand, and Japan (Figure 1. 7). The defining feature of these countries, which comprise about one-quarter of humanity, is their relatively high standard of living, characterized by a large middle class. The Second World was represented by the Soviet Union and Eastern Europe, a designation that lost its meaning in the post–Cold War era (the 1990 s and since), when the Second World disappeared, to be divided between the First and Third. The poorest and generally weakest countries are in the underdeveloped Third World, sometimes also called developing or, a bit more accurately, less developed countries. The Third World consists of Latin America, Africa, the Middle East, and Asia. Important to understanding this division are differential rates of economic growth, which vary over time and space. • • •

• Generally, the world’s economies collectively grow between 3% and 5% annually (Figure 1. 8). • When a country’s economy grows more rapidly than does its population, the average standard of living is likely to rise, although this depends heavily on how wealth is distributed by class, ethnicity, gender, and region; growth in which new wealth is accumulated at the top does little for the bulk of people. • Conversely, when population growth exceeds that of the economy, the average standard of living is likely to decline, although there are other drivers of falling social mobility such as economic crises. • A few countries have climbed out of the Third World, such as Singapore and South Korea, to enjoy standards of living that rival those in the First World.

• At any given time, the world economy is dominated by one or more core states. In the nineteenth century, the era of the Pax Britannica, or period of peace dominated by the British Empire, Britain was the world’s only economic and political superpower. The British navy ruled every ocean in the world, and the sun never set on the British Empire. • By 1900, however, the United States overtook Britain as the world’s largest national economy, and after World War II the United States displaced Britain as the world’s leading superpower, a status it still enjoys today, even if its dominance is gradually eroding in the face of mounting competition. • The United States is still unquestionably the largest economy in the world, although its standard of living is not the highest (falling below several countries in northern Europe). • It used its wealth and power to mold the international economy to reflect its interests and those of its allies, setting up, for example, the World Bank, the International Monetary Fund (IMF), and the World Trade Organization (WTO).

• By the 1970 s, the relative power of the United States began to decline in the face of intense competition from rival core states such as Japan and Germany. • By the late 1970 s, the world order created by the United States after World War II began to come to an end. • One major factor in generating this change was the Organization of the Petroleum Exporting Countries (OPEC)–induced petroleum crises of 1973 and 1979, which dramatically increased the price of a critical input into industrialized economies and plunged them into recession. • The “petro-shocks” dealt a significant blow to the world economy, driving up heating and transportation costs, exacerbating unemployment, accelerating deindustrialization, and curtailing many people’s standards of living, essentially ending the post– WWII economic boom.

• Out of the old order came the birth of a new one in the 1980 s and 1990 s. This new world system, in which the Soviet bloc disappeared, left the United States as the world’s only superpower. However, U. S. economic hegemony has been increasingly challenged by the rise of the newly industrializing countries (NICs), particularly those in East Asia and especially China. • This global order is characterized by highly developed international markets dominated by TNCs, many of which have larger gross output than some countries (Figure 1. 9). • States and national governments also play in the global system, managing trade through protectionism, limiting movements of labor, or by reducing trade barriers (e. g. , through the World Trade Organization). • Like most economies around the world, the American economy has become progressively more globalized, partly as a result of the influx of foreign investment from a variety of nations, mostly in Europe, and from Canada, China, and Japan. • Simultaneously, the microelectronics revolution unleashed an enormous wave of change that dramatically affected all domains of production and consumption, particularly in telecommunications and finance, accelerating the globalization of services as well as manufacturing.

Globalization • Globalization refers to a complex set of worldwide processes that make the world economy and the various societies that comprise it more integrated and more interdependent. • Globalization is essentially an expansion in the scope, scale, and velocity of international transactions. It is a useful way to explain the movements of capital, people, goods, and ideas within and among various regions of the world and their cultural, political, and environmental systems. • Among other things, globalization is a process that shrinks the world by reducing transport and communication times and costs among different places. This process has exposed different people in the world to an increasingly homogeneous global culture (largely American in origin), a global market in which more goods and services are freely available everywhere than ever before, and global environmental changes on a scale never before seen.

Globalization • Globalization should not be simply seen as inherently beneficial or inherently negative in character. Rather, it is a mixture of both sets of qualities that varies widely by place. • In some regions, social, political, and economic problems have resulted from a tension between the processes promoting global culture, economy, and environment on the one hand, and the practice and preservation of local economic isolation, cultural tradition, and the localization of environmental problems on the other hand. • The most important dimensions of globalization that are occurring at an ever-increasing rate in the world today: globalization of culture and consumption, telecommunications, and economic activity, including TNCs, foreign investment, work, services, and information technology.

Globalization of Culture and Consumption • Culture is the total learned way of life of a society. Culture can be defined as that body of beliefs, customs, traditions, social forms, and material traits constituting a distinct social tradition of a group of people. Cultural practices include religion, attitudes toward family size, as well as language, which is the transmission of ideas through languages, symbols, and signs. • Historically, different cultures were distinct from one another, but contemporary capitalism has increasingly homogenized cultures around the planet, largely by exporting American culture. • Go to any shopping mall in Brazil, South Africa, or Indonesia, and you are likely to hear American music and see American movies, American clothes, and American fast food. • For example, large numbers of the world’s young people enjoy wearing blue jeans and Nike shoes, consuming Coca-Cola and Pepsi, smoking Marlboro cigarettes, eating Mc. Donald’s hamburgers, listening to Lady Gaga, or watching American action movies.

Telecommunications • • • The growth of a global digital telecommunications network greatly enhances the globalization of culture. Because of cable television and international news services, we know a great deal about political and economic events happening anywhere in the world within a few hours. Far-away places are less remote and more accessible now than they were just 10 years ago. Through television, cell phones, and the Internet, we can reach people who live far away, interact with them, and receive pictures and messages from around the world at the click of a mouse. Citizens in developed countries take such telecommunication innovations as cell phones and cable television for granted. But the entire world is being wired into global networks of millions of personal machines interconnected by fiber-optic and satellite links, which allows essentially instantaneous communications with anyone on the Net. That interchange can include mail, documents, books, pictures and photographs, voice and music, video and television images, and programs and film. The largest of these networks, the Internet, includes over 1. 6 billion people, or one-fourth of the planet. The spread of telecommunications is not ubiquitous however, and it generates its own geographies. The world contains significant handfuls of people who have never seen television, used a phone, or ridden in a motor vehicle. Access to the communications of the information age and modern transportation is restricted by an uneven division of wealth worldwide. Even within countries, access may be restricted because of uneven distribution of wealth or because of discrimination against a tribe, an ethnic group, or women.

Globalization of the Economy • The globalization of the economy has meant that national and state borders and differences between financial markets have become much less important because of a number of trends: • (1) international finance; • (2) the increasing importance of TNCs; • (3) foreign direct investment from the core regions of the world— North America, Western Europe, and East Asia; • (4) global specialization in the location of production; • (5) globalization of the tertiary sector of the economy; • (6) the globalization of office functions; • (7) global tourism.

Globalization of the Economy • Globalization involves international financial flows. In the deregulated, hypermobile, electronic world of international banking today, telecommunications has allowed a single global capital market. • Computers allow traders to monitor and trade instantaneously in national currencies, stocks, bonds, and futures listed anywhere in the world. • Banks, financial houses, and corporations can operate worldwide partly because of the decision centers that control the global economy. • Consequently, banks and corporations can react immediately to changes in the value of commodities or gold on the world market and the rate of exchange between the dollar and the euro, the Japanese yen, the Chinese yuan, and other currencies.

Transnational Corporations (TNCs) • • • The globalization of the economy has been spearheaded by transnational corporations (TNCs), sometimes referred to as multinational enterprises (MNEs). In 1970, the world’s 15 richest nations were host to the headquarters of 7500 TNCs. However, by 2000 these same countries hosted 25, 000 TNCs. According to the World Investment Report by the United Nations Conference on Trade and Development, there are some 53, 000 TNCs in the world today, controlling about 40% of all private-sector assets and accounting for a third of the goods produced for the world’s market economies. They employ 100 million people directly, which is 4% of the employment in developed regions and 12% in developing regions. In some countries, TNCs are responsible for extremely high proportions of total domestic production-the mining, manufacturing, and petroleum sectors of the Canadian economy, for example. TNCs also play a disproportionately dominant role in other developed countries, such as Belgium, France, the Netherlands, Italy, Britain, and Japan. Sales of goods and services by very large TNCs exceed $100 billion annually, and the sales of the largest TNCs are larger than most countries’ total economies, making the decisions of a global corporation important to a small country’s economy. Today, TNCs control more than half of all international trade simply via intracorporate transfers of components, services, investments, profits, and managerial talent among their scattered plants and offices in various countries. Most of this intrafirm trade is not finished products and services, but components, subassemblies, parts, and semifinished products.

Transnational Corporations (TNCs) • • Thus TNCs, not countries, are the primary agents of international trade, largely between and within their organizations. In effect, TNCs change countries’ reserves of resources by moving human and physical capital and technology from one part of the world to the other, creating a new asset base, and allowing production and manufacturing to occur in outsourced locations where they may not have happened otherwise. A TNC will operate in a country where a set of characteristics taken together is more attractive: location, resource endowments, size and nature of market, and political environment. Further, the TNC is able to use transfer pricing, the practice of setting prices for goods and services provided by subsidiaries so as to transfer taxable profits to countries that have the lowest corporate tax rates. TNCs are able to compete on a world scale due to their transnational communications ability that allows them to share information, via the Internet and satellite and fiber optic communication systems, with their subsidiaries and branches throughout the world. This is a tremendous advantage in that all components of the TNC can stay aware of markets, products, labor, and business opportunities. TNCs also have the advantages of large stores of capital, technological and managerial skill, and overall economies of scale.

Transnational Corporations (TNCs) • Foreign direct investment (FDI) refers to investment by foreigners in factories that are operated by the foreign owners of a TNC. • Since the 1980 s, governments in the three core regions where TNCs are based—North America, Europe, and East Asia—have made changes to accommodate international corporate capital, altering tax codes and regulations that formerly hindered transnational operations. • Other countries where TNCs wish to invest, especially developing countries, have also modified their laws, taxes, and regulations to encourage transnational operations within their borders. These accommodations, often labeled “neoliberalism, ” have changed the relationships between countries and corporations, favoring the latter over the former.

Globalization of Investment • The direction of the world economy is centered in the core regions—North America, Western Europe, and Japan—as well as the Pacific Rim. From the three major world cities, or command centers, in New York, London, and Tokyo, orders are sent instantaneously to factory shops and research centers around the world because manufacturing production and assembly lines and lower-cost offices have been located outside the high-cost core countries. • For example, most U. S. sportswear companies, which are centered in New York City and Los Angeles, have moved their production to Asian countries. Latin America, Africa, and Asia contain three-fourths of the world population and almost all of its population growth. These countries find themselves on the periphery of the world economy, suffering a sustained lack of foreign investment; this pattern is the result of centuries of colonialism and a world system in which the rules often work against them.

Globalization of Investment • Three trends are apparent in foreign direct investment (FDI) in developing countries. • First, the proportion of FDI that core countries are allocating to periphery countries is declining. Core countries increasingly invest in one another. • Second, FDI is becoming more geographically selective. Countries that attract the greatest FDI from the core countries are those that have chosen the export-led strategy of economic growth. Countries welcome foreign investment in order to build factories that will manufacture goods for international markets and employ local labor. Export-led policies rely on global capital markets to facilitate international investment and global marketing networks to distribute the products. • The countries that have grown the fastest in recent decades have generally followed the export-led approach as opposed to the alternate approach, import substitution.

Locational Specialization • In the new global economy, TNCs maintain a competitive edge by correctly identifying optimum geographic factors and locations for each of its activities, including engineering systems, raw material extraction, production, storage, office functions, marketing, and management. • Suitable places for each activity may be clustered in one country or may be disbursed in countries around the world. The resulting globalization of the economy has increased economic differences among have and have-not places in the world. Factories are closed in some locations and reopened in other countries. Some countries become centers of technical research, whereas low-skilled manual tasks are concentrated in others. • Changes in the geography of production have created a spatial division of labor in which regions specialize in particular functions. • TNCs decide where to locate in response to the characteristics of the local labor force, its skill level, the prevailing wage, and attitudes toward unions, tariffs, and transportation rates. A TNC may close factories in regions with high wage rates and strong labor unions.

Globalization of Services • • The globalization of services and consumption also plays an important economic role. For example, U. S. business service exports generate one-third of the nation’s foreign revenues, dwarfing auto exports. Business services are essential inputs to TNCs as they expand into the world arena. This international sector includes legal counsel, business consulting, accounting, marketing, sales, advertising, billing, and computer services. Many professionals— architects, software designers, business consultants—market their skills throughout the world. The sector also includes tourism, education of foreign students, and entertainment- TV, music recordings, and movies. By 2000, 60% of the gross revenues of the five largest U. S. motion picture studios came from outside the United States. As with manufacturing, the globalization of services operates in a world of a declining role for the nation-state but a continuing emphasis on cultural differences at both the national and regional levels. Globalization of Tourism is one the world’s fastest-growing industries, employing 230 million people in the year 2009 and contributing about 12% of the world’s gross domestic product.

Information Technology and Globalization • Real-time information systems are those that make information available as it happens, or at least as soon as software programs process it and make it available, so that everyone can seek critical information by accessing a computer. This is one of the essential differences between the world economy of the future and the world economy of the past. • Individuals, companies, and TNCs need feedback about their decisions as soon as it becomes available so that they can adapt faster and continuously to customers’ needs and thus compete more effectively. Real -time information systems allow business decisions to be made with the minimum of bureaucracy. • The communications and information technology (IT) revolution has come about through the networking of individual computers, which are linked to global networks of personal computers and information databases. These communication networks, which include the Internet, allow instantaneous communication with anyone else on the network.

Globalization versus Local Diversity • • • Globalization has affected different regions in different ways, and therefore must be understood geographically. Generally, it has damaged but not completely destroyed unique local diversity. Many current political, social, and economic problems arise from the tension between forces promoting globalization of the culture and economy versus those striving to preserve local cultural traditions and economic self-sufficiency. The desire to retain traditional economies and cultural preferences in the face of increasing globalization has led to political conflict, social chaos, and market fragmentation in more traditional regions of the world. Globalization and local diversity will coexist and shape each other, a development some geographers call “glocalization. ” The hypothesis of uneven fragmentation— the world economy produces different results in different places—accommodates continuing antagonism between globalizing and localizing tendencies that will, even if unevenly, coexist with each other. For this to take place, individuals must appreciate that they can advance both local and global values without damaging either and that multiple loyalties to different local, national, and transnational affiliations need not be mutually exclusive. People can be loyal to family, community, country, and the world’s people simultaneously. In a globalized world, more and more people become aware of the extent to which their wellbeing is dependent on events and trends elsewhere.

Problems in World Development • Despite the economic progress in many parts of the world, there are still vast areas of the planet in which billions of people remain mired in deep poverty. • The purpose of development is to improve the quality of people’s lives—to provide secure jobs, housing, adequate nutrition and health services, clean water and air, affordable transportation, and education. • Whether development takes place depends on the extent to which social and economic changes and a restructuring of geographic space help or hinder in meeting the basic needs of the majority of people (see Chapter 14).

Problems in World Development • Problems associated with the development process occur at every level, ranging from a Somalian villager’s access to food and a health clinic to international trade relations between rich and poor countries. Our attempts to understand development problems at the local, regional, and international levels must consider the principles of resource use as well as the principles surrounding the exchange and movement of goods, people, and ideas. • Two critical issues require immediate attention. One is the challenge to economic expansion posed by the environmental constraints of energy supplies, resources, and pollution (Chapter 4). • The other element is the enormous and explosive issue of disparities in the distribution of wealth between rich and poor countries, urban and rural areas, wealthy and poor people, dominant and subordinate ethnic groups, and men and women (see Chapter 14).

Environmental constraints • The world environment—the complex and interconnected links among the natural systems of air, water, and living things—is caught in a tightening vise. • On the one hand, the environment is being stressed by the massive overconsumption and wasteful consumer culture of the developed world. • On the other hand, the environment is being squeezed by the poor people in developing countries who must often destroy their resource base in order to stay alive. • The constraints of diminishing energy supplies, resource limitations, and environmental degradation are three obstacles that threaten the possibility of future economic growth.

Environmental constraints • There is a significant energy problem in much of the developing world. Oil is an unaffordable luxury for much of the world’s population, who cook and heat with fuelwood, charcoal, animal wastes, and crop residues. • In countries such as India, Haiti, Indonesia, Malaysia, Tanzania, and Brazil, fuelwood collection is a major cause of deforestation—one of the most severe environmental problems in the underdeveloped world.

• • • The fragility of the environment poses a formidable obstacle to economic growth. Are there limits to growth? Is the world overpopulated? Some of our present activities, in the absence of controls, may lead to a world that will be uninhabitable for future generations. Topsoil, an irreplaceable resource, is being lost because of overcultivation, improper irrigation, grassland plowing, and deforestation. Water tables are falling, including in the United States, where, for example, the Ogallala water basin under the Great Plains is in increasing danger of being rapidly depleted. Forests are being torn down by lumber and paper companies and by farmers in need of agricultural land wood to keep warm or cook their food. Water is being poisoned by domestic sewage, toxic chemicals, and industrial wastes. The waste products of industrial regions are threatening to change the world’s climate. Accumulated pollutants in the atmosphere—carbon dioxide, methane, nitrous oxide, sulfur dioxide, and chlorofluorocarbons—are said to be enhancing a natural greenhouse effect that may cause world temperatures to rise. El Niño events, or periodic warming of the Pacific Ocean by just 0. 25 degrees Fahrenheit, caused violent weather disruptions worldwide, with billions of dollars worth of damage from floods, mudslides, and loss of life.

Disparities in Wealth and Well-Being • The world economy generates great variations in economic structures, standards of living, and quality of life around the globe. • There are enormous differences between the world’s richest and poorest nations in wealth and standard of living as measured by economic statistics such as GNP per capita and paralleled by social and demographic measures such as life expectancy, infant mortality rates, literacy, and caloric consumption. • In short, maps of economic measures are simultaneously maps of other dimensions of people’s lives, including how long they live, the chances that their babies will grow into adults, their ability to read and write, and the quality of the food they eat. • These numbers point to the multifaceted nature of poverty and development, which is not just economic but also social and political.

Disparities in Wealth and Well-Being • Poverty afflicts relatively few people in economically developed countries, although there are nonetheless disturbingly large numbers of poor in wealthy societies such as the United States. • Deeply entrenched, institutionalized poverty confines billions of people to lives of inadequate food, shelter, health care, transportation, education, and access to other resources. • Mass poverty is the single most important world development problem of our time. Mass poverty is ethically intolerable and a critical issue that we must try to overcome.

Who are the world’s poor? • They are the 15 million children in Africa, Asia, and Latin America who die of hunger every year. They are the 1. 5 billion people, or 24% of the world’s population, who do not have access to safe drinking water. They are the 1. 4 billion without sanitary waste disposal facilities. They are the 3 billion people— 50% of the world’s population—who live in countries in which the per capita income was less than $400 in 2005. • Half of the world (largely in Africa) earns $2 per day or less. These numbers are characteristic of impoverished countries in which much economic activity takes place outside of the market. • These people are caught in a vicious cycle of poverty (Figure 1. 10), often with few ways out, and lead lives of quiet desperation and hopelessness. • Their life expectancies tend to be short, infant mortality levels high, and access to energy, medical care, transportation, and education often minimal. The economic geography of the world is at its core concerned with these social and spatial discrepancies among and within countries.

• The poor of the world overwhelmingly live in developing countries, most of them former European colonies, which failed for one reason or another to keep up with the economic levels of the West over the past 500 years. During the worldwide economic boom that occurred in the three decades following World War II (1945– 1975), the GNP of the developed countries more than doubled. Although per capita real income in developing countries also rose, incomes in developed countries rose much more quickly. • Developed countries enjoyed 66% of the world’s increase, whereas half of the world’s population in underdeveloped countries (excluding China) made do with one-eighth of the world’s income. • By 1982, the national income of the United States (then 235 million people) was about equal to the total income of the Third World (more than 3 billion people). • In short, over the past half-century the rich have become richer and the poor have gained only slightly.

• The developing world is far from a homogeneous entity; that is, there are enormous differences among and within developing countries in terms of their historical background, cultures, economies and standards of living, and when and how they were incorporated into the world system. So great are the variations among countries, and often within, that it is simplistic to speak of a single developing world without immediately acknowledging its differences.

• With the debt crisis of the 1980 s, the United States finally discovered it had a real stake in the prosperity of the developing world. The inability of some countries to make payments on their debt placed the financial structures of the United States and some European nations in jeopardy. Many U. S. banks, including some of the largest, would technically have been insolvent if their loans to developing nations had been declared in default. • This led to enormous pressure to resolve the immediate problems of the debt crisis, many of which were directly related to the poor performance of the economies of the debtor nations.

• Unfortunately, for many debtors, the solution often proved to be more painful than the problem itself. Under strict rules imposed by the IMF and other international agencies, which believed in market fundamentalism (the narrow notion that only free markets can alleviate social problems), stringent limits were placed on the economic policies of debtors, with the result that a majority of citizens in these nations often found themselves worse off. • The goals of IMF conditionality, as it came to be called, were to restore growth, reduce central government involvement in the economy, and expand the exports of goods and services while reducing imports so that the debtors would have sufficient earnings of foreign revenue to make payment on the interest and principal of their debt.

• There is little evidence that these policies helped to restore economic growth, and they even lowered many people’s quality of life, as the former chief economist of the World Bank, George Stiglitz (2002), noted, by forcing drastic cutbacks in necessary government services and forcing currency devaluations that drove up the cost of imports. • However, such changes did result in export surpluses that made debt servicing easier. As a consequence, the 1990 s saw a remarkable reversal in the flow of financial resources— instead of the flow from rich nations to poor nations to assist in development efforts, there was a flow from poor to rich. But debt repayments have become a serious obstacle to further economic development in poor countries where capital and financial resources are scarce and every dollar lost has repercussions throughout the economy.